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In defence of fuel subsidy in Nigeria, By Chidi Chinedu
This argument is for the people.
There is now a near-unanimous rejection of the petrol subsidy regime in Nigeria. This is now the popular position. I fear that with the deification of this position, some valid arguments in favour of petrol subsidy within Nigeria’s unique socio-economic context are being denied oxygen, with grave, even existential, threat to the people. To surrender the argument to a government uninterested in ending its imperial status— with all its attendant costs— and an egotistic liberal economic elite buoyed by affirmations within its intellectual bubble, and determined to test the furthest free market theories on the already pulverized masses, is a position I cannot accept.
There has been a growing socio-economic inattentional blindness among Nigeria’s ruling and liberal economic intellectual elite regarding the petrol subsidy issue. They have almost entirely embraced the Bretton Woods position on the petrol subsidy expenditure which isolates it as a drain on national resources, costing the country multiple other development opportunities. This position is flawed, I reckon. In Nigeria, isolating fuel subsidy as a purely wasteful consumption spend is an error. Within the context of Nigeria’s energy crisis, inflation surge, purchasing power squeeze, and general cost of production challenges, petrol subsidy cannot be so rightly isolated.
Caution and contemplation are key in this debate. Scholarly tentativeness and intellectual humility are paramount. One ideological strand in economics cannot be gospel. It cannot be unchallengeable. It cannot be treated as an absolute truth. Our pro-subsidy removal economists (who also champion free float of the currency and other free market reforms) must be realistic enough to recognize that economics is not an exact science. An economic proposal, more often than not, cannot solely determine its own destiny; it depends on some other variables. It is only this realization that will allow for expanded thinking and pragmatic, as against ideological, propositions. I reckon that what has become the subsidy conundrum has a hybrid solution, not an entirely free market solution, given the peculiarities of Context Nigeria.
The fuel subsidy regime does not exist in isolation. In Nigeria, it is simplistic, even inaccurate, to suggest that petrol subsidy is merely subsidizing consumption (not that it is entirely indefensible to argue for subsidy on consumption); it is subsidizing production as well. The Nigerian subsidy story is different. The Nigerian context strips some of the general oft-repeated theoretical principles against subsidy, like “don’t subsidize consumption”, “it is the rich that are being subsidized” and “government needs the money to drive development” of their force of truth; I will explain.
“In Nigeria, petrol subsidy is a purchasing power argument. It is a production argument. It is a local economy energizer argument. It is not merely a consumption argument”.
Regarding production and energizing of local economies, petrol subsidy within the context of Nigeria’s energy crisis provides useful insights. According to the World Bank, 85 million Nigerians (43% of the population) do not have access to grid electricity, representing the largest energy access deficit globally.
To survive the grid energy exclusion, individuals, households and businesses resort to reliance on generators. According to the National Bureau of Statistics (NBS), generators powered by petrol, diesel and gas provide 48.6 percent of the electricity consumed by power users across the country. Of this figure, petrol-powered generators account for the bulk of the share, at 22.6 percent.
Overall, an estimated 60 million people use generators to provide electricity for their homes and businesses. According to the International Renewable Energy Agency’s (IRENA), 84% of urban households use backup power supply systems such as fossil diesel/ gasoline generators, while 86% of the companies in Nigeria own or share a generator, making Nigeria the highest importer of Premium Motor Spirit (PMS) and diesel generators in Africa as of 2022.
“Nigerian households and businesses spend an estimated $22 billion annually to fuel generators powering their homes and business”.
The June 2022 report by Stears and Sterling, titled, “Nigeria’s State of Power: Electrifying the Nation’s Economy,” provides some useful insights. It reveals that:
“Over 40 per cent of Nigerian households own generators, and bear the associated costs. First, the cost of purchasing generators – an estimated $500m between 2015 and 2019, higher than the proposed capital expenditure in Nigeria’s 2022 budget.
“There is also the cost of powering these generators. Sources and estimates vary widely, but the African Development Bank estimated that Nigerians spend $14bn fuelling petrol or diesel powered generators.
“While PMS (Premium Motor Spirit) or petrol prices have been kept artificially low for the consumers through subsidies, variations in AGO (Automotive Gas Oil) or diesel prices can have a severe impact on households and businesses as Nigerians are currently experiencing.”
There is telling data from the report on how the largely stable price of petrol due to the subsidy regime helps small businesses survive. “These prices make the small petrol generators more attractive to households and MSMEs (micro, small and medium enterprises)”, the report stated.
“It is estimated that…In countries with low electricity reliability, the proportion of SMEs using a generator is higher, reaching 86 per cent in Nigeria.”
I have taken pains to show how inextricably linked access to electricity is to petrol subsidy because this point is hardly stated by anti-subsidy advocates. Only recently, the NNPC boss, Mele Kyari, in defending the removal of subsidy, said the country was mostly subsidizing the rich. He, like others, uses car-ownership status as one key measure of ‘the rich’. I’ve always found this argument puzzling. The number of small commercial vehicles relying on petrol belongs to the rich too? Millions of Nigerians relying on petrol-powered commercial vehicles because of the absence of public transportation are enjoying some subsidy luxury?
It is also curious that the argument about lack of capacity for local refining of petrol being largely responsible for the cost of subsidies is now being abandoned. The NNPC boss said the coming of Dangote refinery and eventual return of Nigeria’s refineries would not impact price of petrol significantly. So, what is being said is that the people will now be at the mercy of the markets, essentially having to deal with another heavy cost burden in the foreseeable future, within an already killing cost of living crisis. This is the new normal. An era of price hikes. The argument on how competition and market forces would swing price eventually to the consumer is a curious one too. Swing it to what range? If what has happened with the deregulated diesel and kerosene prices are anything to go by, the petrol price band will for the foreseeable future remain a menacing threat to the people’s standard of living.
The reliance of SMEs, especially, on petrol (as with owners and passengers of petrol-powered commercial vehicles) and petrol-powered generators is a counter to the argument that we are merely subsidizing consumption. SMEs within the formal and informal economies rely greatly on petrol. Removing the subsidy has just triggered an unprecedented price disruption with grave implications for these businesses and their consumers.
I have heard the argument about the unsustainability of petrol subsidy, given Nigeria’s revenue and debt crises. That’s a government argument, a convenient one. That’s not the fault of the people. If the government were serious about waste, prudence and efficiency, then a holistic reform proposal should be advanced. It must include, reining in the size of government, blocking leakages, cutting waste, fighting corruption, and ending subsidies for the actual rich.
“..the total waivers granted by the Nigerian government surpassed its total revenue by 71.3 per cent”
Speaking of subsidies for the actual rich, data from the nation’s Medium Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP) 2023-2025 show that Nigerian government granted waivers, incentives and exemptions worth N2.296 trillion in 2021 to different beneficiaries through the Nigeria Customs Service (NCS) while Customs’ total revenue collection in 2021 was only N1.34 trillion. This implies that the total waivers granted by the Nigerian government surpassed its total revenue by 71.3 per cent.
The Federal Government’s introduction of import Duty Exemption Certificate (IDEC) through the Ministry of Finance exempting critical players from payment of import duties and other statutory Customs charges has been alleged to have cost the country a whopping N16 trillion in fraudulent manipulation of the system. Some companies, individuals and other entities were alleged to have abused the system and shortchanged the Federal Government of revenue by hiding under the waiver policy to evade duty on imported goods that are dutiable.
“Senate Committee on Finance had frowned at the N6 trillion tax and import duty waivers proposed by the Nigerian government in the 2023 budget, while pushing for wastages and leakages in the nation’s public sector to be blocked”.
It helps to remember that the Senate Committee on Finance had frowned at the N6 trillion tax and import duty waivers proposed by the Nigerian government in the 2023 budget while pushing for wastages and leakages in the nation’s public sector to be blocked.
I have seen calls for interventions to cushion the impact of the subsidy removal on the people. Things like provision of public transportation and minimum wage increase have been proposed. I believe these proposals underestimate the multiplier force of petrol subsidy in Nigeria. With its removal, the price of virtually every commodity has gone up significantly. Yemi Kale, former NBS boss, estimates that the removal will take inflation to 30 percent. This is at a time the people have been battling high prices of commodities. How can limited provision of public transportation or marginal increase in minimum wage mostly for federal workers stem this system-wide disruption? There are structural issues, like electricity deficit and other cost of production issues, which put these interventions in their proper context— a dangling reed in a deserted island.
And if increase in minimum wage triggers further inflation, what value of the increase would be left? Won’t this just amount to a circular price movement— akin to taking us on a deluded journey to escape a cost of living crisis and arriving at the same point of departure ?
“how can the government which has failed to manage a subsidy regime that has inherent capacity for inclusive reach, design and manage a benefits system entirely dependent on its managerial capacity and integrity?”
Some have argued that the savings from the subsidy would be channelled to proper development priorities. This is the argument of the government as well. They seem to be arguing that the subsidy spending is a waste, a drain on national resources. While I can relate with the corruption part of the subsidy regime, I vehemently reject the dismissal of the petrol subsidy as a waste. They appear to be saying that unless we subject public expenditure to some government programme that plans the disbursement of funds and decides winners and losers, the spending is of inferior value. I reject this. This stems from unreasonable faith in the capacity of government; how can the government which has failed to manage a subsidy regime that has inherent capacity for inclusive reach, design and manage a benefits system entirely dependent on its managerial capacity and integrity?
“I believe petrol subsidy is the most direct, inclusive, impactful and far-reaching government benefits distribution system within the Nigerian context”
Contrary to this position, I believe the petrol subsidy is the most direct, inclusive, impactful and far-reaching government benefits distribution system within the Nigerian context. We have seen failed attempts at palliative distribution. The social welfare system of the Buhari administration continues to suffer credibility issues as many believe it has been neither widespread, verifiable, or inclusive.
Some have even pointed to how many hard infrastructure projects could have been executed with the monies used for subsidy payments. It is as if they are saying hard infrastructure takes precedence over human development. This is a flawed argument. There is a reason why HDI is deemed an essential measure of a country’s development. Both can, and should, be prioritized.
“In the long run, we’re all dead”.
Finally, to the economists who ask the longsuffering Nigerian masses to exercise further patience, to have faith that the government’s reforms would yield lasting fruits, and that the free market would resolve the issues in their favour in the long run, may I kindly remind them of John Maynard Keynes’ famous quote that “In the long run, we’re all dead”.
In fact, I reproduce it in full:
“But this long run is a misleading guide to current affairs. In the long run, we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us, that when the storm is long past, the ocean is flat again.”
Chinedu Chidi, public commentator, writes from Abuja, Nigeria and can be reached via firstname.lastname@example.org
Uganda’s expiration pandemic: Expired courses, drugs, brains…By Joachim Buwembo
I swear, Ugandans on Twitter will not go to Heaven! And it is not just on account of the cruel comments they make when a prominent personality dies. It is about their views on everything and anything. They closed the month of May by dismissing everything as expired.
It started with an inadvertently ambiguous statement from the National Council of Higher Education, NCHE, which categorised many courses offered at both public and private universities as “expired”.
It transpires that courses are supposed to be assessed and periodically reassessed, but this has not been done for many courses by the relevant universities with approval of NCHE.
The clarification came quickly but not quickly enough. Whoever drafted that notice started regretting the minute it hit public media, as it became a feast of mincemeat on Twitter.
One of the earliest tweets was of resignation, saying that it was all obvious as expired courses had produced expired health workers who administered expired contraceptives to women, which led to the birth of expired babies, who are now offering expired services to the public.
You can say that this cruel diagnosis is itself logically expired. Unfortunately, there seems to be evidence around that expiry is the real malaise dogging our steps, whichever direction we want to take. With apparently expired experts directing the economy (locally pronounced enkonome), full national recovery from Covid-19 and Ukraine seems to be taking rather long.
The public debt has grown beyond 50 percent of GDP and the Uganda Revenue Authority (URA) is not collecting enough. But how can it conceivably collect enough when the biggest taxable sources are themselves expired?
One of URA’s cash cows is importation of old cars that expired long ago in the countries of origin. The terribly fuel-inefficient contraptions thus guzzle sinful quantities of fuel — which is heavily taxed.
The fuel itself is expired, the type that was long abandoned by developed countries, with lots of sulphur, poisoning the poor Ugandan bodies, as it gets pumped into the air around us.
The other tax cash cow is beer, which is an expiry accelerator that makes humans age faster and the drinker’s brain to expire rapidly.
But a tax source even bigger than petrol, old cars or beer is expired mobile phone services. Although these services are the in-thing in a poor country, they are still rudimentary, as the digital capabilities are underutilised.
Things like 5G are more talk than reality and buying the best phone on the world market will not give you the experience it should when you use it here. But we cannot say much because many expired journalists are scared of criticising mobile service providers because they are big advertisers who, if annoyed, can hurt the journalists’ employers, it is often said.
With such expired sources of tax revenue, the country has little option but to rely on expired loan arrangements to finance its budget. The loans are designed in expired format by expired minds of the lenders. The lenders operate with the expired philosophy that the borrower is not supposed to think smartly, hence the skewed terms that are the cry of poor nations all over the globe.
They had started running away from major Western lenders, citing being given embarrassing “conditionalities” for the loans. They ran to new lenders whose mentality turned out to be even more expired, leaning more towards the Shakespearean Shylock from Merchant of Venice, whose method of loan recovery was to slice a pound (half kilo) of flesh off the borrower’s chest.
Now the borrowers are running back to the older expired lenders, as the expired debt pendulum swings back and forth ceaselessly. The borrowers themselves are exhausted with expiration and are even rumoured to be going to commercial money lenders next.
But, not to worry much, the NHE has clarified by rendering the expiry term itself expired. NHE now calls the courses “un-reassessed.”
So, expiry itself has expired.
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